What is Mortgage Life Insurance?
Mortgage Life Insurance is also commonly known as Mortgage Protection Insurance.
It’s a form of insurance that ensures that your outstanding mortgage will be fully repaid if you died during the period your mortgage was outstanding. Within the policy, your Life Company can be asked to send the proceeds of the policy direct to your mortgage lender.
If you are looking for insurance that will pay your monthly mortgage repayments if became ill or unemployed, then you actually need Mortgage Payment Protection Insurance. (For more information on Mortgage Payment Protection Insurance click here: What is Mortgage Payment Protection Insurance?)
When you request a quotation for Mortgage Life Insurance, you will be asked if your mortgage is a repayment mortgage or an interest only mortgage. This is because, if you have a repayment mortgage, the level of cover you require will steadily decrease as you pay back the capital sum owed to your mortgage lender. Therefore, you need a type of insurance that will reduce at the same rate as you borrowing decreases – this is what Mortgage Life Insurance provides.
If you have an interest only mortgage, the capital sum owed to the mortgage lender remains constant. To cover an interest only mortgage you will need standard Life Insurance cover. (For further information about Level Life Insurance cover click here: What is Life Insurance?)
In all cases the initial value of cover you require on your Life policy will be equal to the sum you owe your mortgage lender at the time you commence your insurance.
Mortgage Life Insurance that provides decreasing cover is much cheaper than standard Life Insurance providing level cover. Warning. Please make sure you check which type of Mortgage you have before taking out your life cover. A mortgage protection policy will not be sufficient for an interest only mortgage.
An Important Hint: Try to avoid buying your Mortgage Life Insurance through your Bank or Mortgage Lender traditionally they are very expensive.